Zero percent financing, which began as a simple General Motors incentive, has created a chain reaction among automakers and a sales revival at dealerships.
Ford Motor Co. and the Chrysler group were the first to join the 0 percent frenzy. Then September sales picked up, and GM grabbed back market share, prompting Toyota Motor Sales U.S.A. Inc., Daewoo Motor America Inc. and American Suzuki Motor Corp. to add their own 0 percent finance programs.
The annualized new-vehicle sales jumped from a drooping 15.8 million units to a 16.4 million-unit rate, says David Littmann, chief economist for Comerica Bank, based in Detroit.
And dealerships paralyzed by the slowdown have customers lining up to take advantage of free loans.
Powerful messageThe no-interest message is so powerful that customers who would have leased or paid cash for vehicles are opting for free loans. But some dealership finance managers think zero percent interest is only drawing customers who would have bought vehicles within the next few months anyway.
"I believe we generated incremental business, though some of it could be pulling ahead a little bit," said Mike Maroone, president of AutoNation Inc., the nation's largest dealership group. "I don't know if the next four weekends will be as good as the last one, but I believe October will be an incredible month."
AutoNation Inc. reported some of its strongest weekend sales this year on Sept. 29-30 after the zero percent campaigns, Maroone said.
Ford, GM and Chrysler dealerships said business is up at least 20 percent from right after the attacks - all because of the traffic generated by zero percent financing. Though an informal survey of 10 dealerships suggests only half the customers qualify for the no-interest programs, the gimmick is getting people in the door.
"Zero interest is a simple program; it's easily communicated; it's something consumers understand," said Paul Ballew, general director of global market and industry analysis for GM.
The no-interest message has not lost punch for Mitsubishi Motors America, which began a 0 percent interest program for 36-month loans last summer on all 2001 models and all 2002 models, except the Lancer. Zero interest and another program deferring payments for one year helped give Mitsubishi its second-best September sales in history.
Lower commissionsFinance managers starved by the economic lull are jumping at every scrap of business - even though they generally make lower commissions on discounted rates.
Typical commissions on regular loans range from .5 percent to 2 percent of the amount financed, says Dave Robertson, executive director of the Association of Finance and Insurance Professionals in Bedford, Texas.
Under Mitsubishi's no-interest program, finance managers earn no commission at all. Chrysler finance managers get a flat $100 or $150, depending on the credit risk. GM finance managers receive 1.5 percent of the amount financed on loans as long as 48 months and a flat $100 for loans 49 months to 60 months long.
Consumers generally are flocking to 60-month loans, and fewer customers qualify for no interest on shorter terms because the monthly payments are larger, finance managers say.
But finance managers still are happy to get the traffic because it provides the chance to sell other finance and insurance products. Said Jeff Catalano, finance manager of Dreher-Holloway Chevrolet Buick in Exeter, N.H.: "It is better than no business at all."